REFILE-Nikkei eases as euro fears spur profit taking

By Sophie Knight TOKYO, Feb 5 (Reuters) - Japan's Nikkei share averagedropped in early trade on Tuesday as investors took signs ofstrife in peripheral euro zone countries as a cue to lock inprofits following five straight days of gains. Hitachi Ltd was in the firing line, shedding 5.6percent after the industrial machinery firm sliced 13 percentoff its full-year operating profit outlook, citing sluggishdemand in Europe and a slowdown in emerging markets. But Japan Airlines Co Ltd was in favour, jumping asmuch as 7.6 percent to its highest level since it went public last September, after the airline hiked its operating profitforecast by 12.7 percent to 186 billion yen ($2 billion) for theyear to March 31. The airline estimated the impact on its earnings from thegrounding of Boeing's Dreamliner jet at around 700million yen ($7.55 million) for the rest of this fiscal year,but said it will discuss compensation with Boeing.

The Nikkei lost 1 percent to 11,151, backing awayfrom a 33-month closing high of 11,260.35 hit on Monday, afterconcern about the euro zone debt crisis flared due to calls forthe Spanish prime minister to resign due to a corruption scandaland news of a probe of alleged misconduct involving an Italianbank three weeks before national elections. "There will only be a spurt of profit-taking in reaction tothis kind of news because it's just one small piece of a verylong and drawn-out crisis," said Toshiyuki Kanayama, seniormarket analyst at Monex. "But the U.S. fell off highs and the Nikkei is also beggingfor a fall after rising for five straight days." Profit-taking meant some of the most sluggish stocks onTuesday morning were those that have seen sharp gains over thepast 2-1/2 months on hopes that Prime Minister Shinzo Abe'sbrand of aggressive monetary and fiscal policy will reinvigoratethe economy. The real estate sector, which has soared around 31percent since mid-November, dropped 2.5 percent, while theinsurers' sub-index, which shot up 46 percent over thepast 2-1/2 months, lost 2 percent on Tuesday morning. "The market has been moving on expectation or speculation formonths, but investors might start looking at the here-and-nowsoon," said Ryota Sakagami, chief strategist of equity researchat SMBC Nikko Securities. "Companies that would benefit from a return to inflation -insurance, real estate and banks - might cool down because thathasn't actually happened yet, while the winners from a weakeryen will remain in focus because that's very real," he added. The yen moved further off a fresh 33-month low hit on Mondaymorning of 93.185 against the dollar, to 92.46 by Tuesdaymorning. The Japanese currency's 14 percent slide sincemid-November has propelled up exporters, whose overseas revenueswill be swollen by a softer yen. While investors are optimistic about future profits,weakness in the yen came too late to much improve results fromthe last quarter, with about two-thirds of the 88 Nikkeicompanies that have reported so far this earnings season missinganalysts' estimates, according to Thomson Reuters Starmine. Sakagami of SMBC Nikko Securities said companies with ahigher proportion of sales from the domestic market may besomewhat sidelined as demand slows at home and signs ofinflation still seem a long way off. Index heavyweight Fast Retailing Ltd, the operatorof the Uniqlo clothing chain, said domestic sales fell 5.5percent in January from a year earlier, citing fewer weekenddays in the month. Its stock fell 2.3 percent,taking 23.1 points off the benchmark. The broader Topix edged down 0.4 percent to 951.91.